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Post econometric policy evaluation: a critique

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  • Beth Ingram
  • Eric M. Leeper

Abstract

An increasingly popular approach to policy evaluation involves applying the parameters calibrated for a real business cycle model that does not include policy to a different model, where policy does affect private decisions. This technique, in effect, estimates a model that misspecifies how private behavior depends on policy. The calibrated parameters depend on policy behavior, but calibrators overlook this dependence when projecting policy effects. This procedure repeats the "Keynesian" errors that Lucas (1976) noted in his influential critique of (then) standard methods of econometric policy evaluation and produces predictions of policy consequences that may be no more useful than ones from traditional econometric models.

Suggested Citation

  • Beth Ingram & Eric M. Leeper, 1990. "Post econometric policy evaluation: a critique," International Finance Discussion Papers 393, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:393
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    References listed on IDEAS

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    Cited by:

    1. Chan Huh & Bharat Trehan, 1991. "Real business cycles: a selective survey," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 3-17.

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    Keywords

    Business cycles ; Econometric models;

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